Global market cap fell last year as volatility surged

Global equity trading was up last year, but market capitalization fell as volatility surged, according to new data from the World Federation of Exchanges (WFE).

The global industry trade group for stock exchanges and clearing houses published a report today, which shows that equity trading volume rose by 11.5% last year and that value traded increased by 15.4%. Yet, the global domestic market cap declined by 14.9% to US$74.4 trillion, which is the first decline for the metric since 2014.

The return to volatility set the tone last year, “with stock markets across the world reflecting the ongoing uncertainties of the global geopolitical landscape right through to the end of 2018,” said Nandini Sukumar, CEO of the WFE.

The report indicates that volatility arrived “against the backdrop of a global economic slowdown, geopolitical and trade tensions, concerns about tightening monetary policy and increased scrutiny of the technology sector.”

The decline in market cap was led by the Asia-Pacific region, down 23.8%. The Europe, Middle East and Africa (EMEA) region dropped by 23.8%, whereas the Americas declined by just 6.3%.

The Americas led the increase in trading activity, with trading volume up by 19.4% in the region, and the value traded up by 30.4%. Asia saw a 7.9% increase in trading volume, and a 3.6% decline in value. The EMEA region reported a 10% increase in volume and an 11.1% rise in value.

Amid the return of volatility, new listings activity worldwide dropped by 14.5%, the WFE reports, with initial public offerings dropping 12.2%. The total number of listed companies also slipped by 0.3% during the year, it says.

The WFE also reports that both the volume and value of trading in exchange-traded funds (ETFs) increased in 2018, with the number of trades rising by 45.8% and the value of trades increasing by 33.4% compared with the previous year. Exchange-traded derivatives volume increased by 19.3%—unsurprisingly, given the current environment.

“In the face of increased global risk, combined with an environment of monetary policy uncertainty and high volatility in both equity and currency markets, it is not surprising to see more investors using derivatives for hedging risk, resulting in strong volumes of equity, currency and interest rate derivatives, all of which were higher in 2018 than in 2017,” Sukumar said.

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